Renovation Nation: Remodeling Startup 101

If you want to open a remodeling business, you

New home sales may be down, but remodeling continues to be very big business. In 2006, remodeling expenditures reached an estimated $233 billion, up 8.4 percent over 2005, according to the National Association of Home Builders.

If you’re thinking of getting into remodeling, industry veterans say you should plan on spending as much time building the business as you do building room additions. Here are some of the critical elements of being a successful remodeler:

1. Good Business Sense

The biggest mistake new remodelers make is failing to operate like a business, says Eric Phillips, vice president and general manager of DreamMaker Bath and Kitchen, of the Triangle in Apex, N.C. You’ll need a basic understanding of cash flow, accounting, sales and marketing, purchasing, contracts and estimating.

And, Dean Bennett advises, set aside time every day to manage your company’s finances. The owner of Dean Bennett Design Build in Castle Rock, Colo., spends eight to 10 hours a week doing his books.

“People aren’t used to that,” he says. “They’re used to going to work. To stay home and not be making any money doing paperwork is tough.”

2. Estimating Expertise

Proper estimating can make or break a remodeler. Bid too low and you can lose money on a job; too high and you won’t get any work.

“It’s a huge aspect of the business,” says Justin Williams, a third-generation builder/remodeler and owner of Williams Drake Construction, in Dallas, Texas. “I’d rather be a little high than ever walk into your home or office and say, ‘I didn’t bid that right.’ Then, you look like an idiot.”

Todd Polifka, CEO and sales director of Vision Remodeling in Little Canada, Minn., has his estimating down to such a science that he guarantees his price.
“When I give you a number, you can go get financing on it and that will be the number,” he says. “If there’s something behind a wall that I missed, shame on me.”

3. Cash Flow Management

Nothing can kill a remodeler faster than cash flow. If there are delays, such as for weather or inspections, you still have to order materials, pay your subcontractors and keep the lights on.

Bennett recommends establishing lines of credit at a bank and with major suppliers. But you also need cash on hand. He suggests that a remodeler have a fiscal quarter’s worth of projected annual gross revenue on hand – between cash, credit cards and a small business line of credit.

“You need that buffer,” he says. “If you run out of cash and can’t pay your employees, you won’t get the job done.”

4. Clear Contracts and Change Orders

A good contract guides the relationship between you and your customer, says Tom McNulty, president of McNulty Design-Build, in Cumberland, R.I. It should detail the scope of work, your responsibilities, the payment terms and how disputes are to be handled. Make it clear enough to understand, but detailed enough to avoid ambiguity. Have a lawyer review all your contracts.

The rule for change orders is simple: Customers sign off on every change order and pay for them in full before the work is done. Do not violate this rule ever, the veterans say, because as soon as you do, you’ll regret it.

Jay Irwin, of Irwin Design and Build, Inc., in Potomac, Md., underscores it. “It’s critical that you follow through with your procedure and stick to it,” he says, “whether it’s a $100 change order or $100,000.”

5. A Marketing Plan

You can’t build a business if no one knows you exist. Marketing efforts will vary, based on your niche; they can include print ads, direct mail and a Yellow Pages listing. A Web site is becoming increasingly important; Polifka makes good use of video testimonials from satisfied clients. Invest in a digital camera to take before-and-after pictures of your projects.

Also, don’t forget the importance of professionally made yard signs and signage for the sides of your vehicles and your equipment trailer.

6. Proper Customer Expectations

Remodeling is an emotional rollercoaster. Not only are your customers spending a lot of money, their homes are being ripped apart by strangers.

Set the proper expectations from the beginning, Irwin says. “If we come in and say, ‘You won’t notice we’re even here,’ we’re setting ourselves up to fail,” he says. Instead, let them know there will be times of noise, dust and disruption – and times when nothing is happening.

Schedule regular meetings to talk about the job’s progress, and to remind them that they’ve made a good decision that will increase the value of their home and their enjoyment of it for years to come.

Pat Curry is a contributing writer for StartupNation.

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